Growth in cloud services and Windows 10 adoption, expansion into new artificial intelligence (AI) territory, and declining Surface revenue are just some of the highlights of Microsoft’s second quarter earnings report.
The company released its numbers on Jan. 26, the first to contain results from their acquisition of LinkedIn in December, and posted a revenue of $26.1 billion for the quarter, up two per cent.
One of Microsoft’s strongest-performing segments has been the cloud, with the company boasting more than $14 billion USD in commercial cloud annualized revenue run rate, up 49 per cent. According to chief executive officer Satya Nadella during the earnings report conference call, “we are on track to achieve our goal of $20 billion [USD] in fiscal year ’18.”
The company’s intelligent cloud unit also posted revenue of $6.9 billion USD, an increase of eight per cent.
These increases come from strong customer demand for cloud solutions, and in particular, Azure, which saw a growth of 95 per cent in revenue, the company says in its report. Additionally, “Azure Premium revenue grew triple digits for the 10th consecutive quarter, and more than three out of four Azure customers are using Premium Services,” Nadella notes.
Microsoft’s flagship operating system, Windows 10, also saw broad growth this quarter. Windows 10 commercial customers “are rapidly adopting” the system, “driven by their need for a secure and trusted platform,” the company says. In fact, enterprise and education deployments alone increased by 52 per cent this quarter.
User engagement on Windows 10 continues to grow as well, with Microsoft reporting that users have asked Cortana more than 18 billion questions to date.
And while the $26.2 billion LinkedIn acquisition was only finalized three weeks before the end of the quarter, Microsoft reports that it contributed $228 million USD of revenue to its productivity unit.
One of the few disappointments in the results from Q2 is the decline in Microsoft’s devices segment. Overall revenue declined by 35 per cent, and phone revenue declined by 81 per cent as the company closed the sale of its feature phone business during this quarter.
Nadella says Surface revenue has also gone down by two per cent as the company continues to phase out the Surface 3 device and replace it with an increasing mix of Pro 4 and Book devices in the portfolio. Hood says she expects Surface revenue to continue declining slightly amidst phasing out Surface 3.
Microsoft’s plans for the future
Looking ahead, Nadella and Microsoft chief financial officer Amy Hood mention that the company has big plans to expand into AI.
“Just this month we acquired AI deep learning startup Maluuba, whose work in natural language processing will help advance our strategy to democratize AI for everyone,” Nadella explains, while adding that Microsoft also plans to develop more AI capabilities in Azure. “Cognitive Services, now integrated with Azure Data Lake, enables customers to use industry-leading AI capabilities to easily analyze images, text, emotions, and sentiments at petabyte scale.”